Information about the Swiss Payment Traffic Systems

Compliance in Swiss payment traffic

EBPP – Electronic Bill Presentment and Payment

New developments within the SIC-system

VOLUME 20 | June 2004

Content ClearIT, Edition 20

2

EDITORIAL 3

FINANCIAL SANCTIONS – A PAYMENT TRAFFIC CHALLENGE 4

Compliance is today’s watch word. Financial intermediaries are in an environment marked by

an uneasy relationship between sanctions regulations and their implementation.

An interview with Roland E. Vock, Head of Division, Export Control Policy and Sanctions,

State Secretariat for Economic Affairs (seco).

COMPLIANCE FILTER AT CREDIT SUISSE 7

Comparing payment orders with embargo lists by governmental organizations, the filter

prevents illegal and suspicious payments from being settled.

EBPP – ELECTRONIC BILL PRESENTMENT AND PAYMENT 8

ClearIT starts a series on electronic bill presentment and payment by showing how

EBPP systems work.

LIECHTENSTEIN AND THE UNIFORM EURO PAYMENT TRAFFIC ZONE 10

The principality on its way to SEPA (Single Euro Payments Area).

NEW DEVELOPMENTS WITHIN THE SIC SYSTEM 11

The influence of the euro and CLS (Continuous Linked Settlement) on the Swiss payment traffic.

THE FUTURE FOR IBAN AND IPI 13

How widespread is the use of the two international standards for the standardization of

account numbers and payment receipts?

THE LSV (DIRECT DEBIT) SERVICE IS BEING REDESIGNED 14

The Swiss Interbank Clearing Ltd. board of directors has approved the detailed draft

for the LSV (direct debit) redesign and signed off on its development.

CONVERSION TO FINANCE IPNet UP AND RUNNING 15

May 1st marks the beginning of the final phase of the conversion from TELOSnet X.25 to

Finance IPNet.

A consensus-driven culture tends to be equated with inefficiency. Are there exceptions that prove the rule?

Joint definitions of functions and interfaces are mandatory wherever and whenever parts of the value-added chain are to be combined. The pay-

ment traffic community of the Swiss financial institutions has turned another challenge into an opportunity and done it in such a way that the final

product is indeed equipped with tangible value added, a ConsensusPLUS culture result, as it were. The «PLUS» stands for the added value men-

tioned above, which in turn evolves from the tenacious process of finding the consensus. The adaptation of the almost 30-year old LSV direct debit

services to the new reality and conditions beautifully illustrates this very culture.

On March 22, the Swiss Interbank Clearing Ltd. board of directors ordered the direct debit product «LSV(new)» to be operational in 2007.

«LSV(new)» is a leading-edge, modular product mix for the direct debit process. This decision extended the LSV life cycle; how did that come about?

And what additional benefits or values are offered to the customers and the financial center? A survey conducted during the last year brought a

very unambiguous result: LSV has its justified market position and will continue to prevail throughout the next few years. It is also perceived as a

complement to the EBPP (Electronic Bill Presentment and Payment) systems and less as a substitute. However, in the era of electronic interfaces,

the delivery channels are no longer timely. (Last year, close to 1,000 data carriers were still being delivered to Telekurs on a daily basis.) Add to

that the fact that – as any highly complex and historically evolved construct – LSV has become expensive to operate and maintain. Hence the motto:

redesign – yes – but thoroughly, prudently and at low-risk. Once again, one of the greatest strengths of the Swiss financial center – the willingness

and ability to effectively cooperate among various institutions and organizations and develop solutions for important challenges in partnership –

prevailed. This evolutionary process, spanning several years, is further proof. Since early 2001, papers have been written, concepts developed, dis-

cussions were held resulting in decisions and fine-tuning. The modular, elegant product ultimately introduced in the detail concept is impressive:

Data is primarily submitted via e-banking interface, a central delivery option has been retained, the financial institutions can choose from among

several delivery formats, the transaction fee will be more than halved and designed variably, depending on transaction volume, and all direct

debits can be rejected.

With that, the monolithic LSV has been replaced by a flexible solution with modular, combinable building blocks. Even though the design and de-

cision phase lasted several years, it has produced a worthy, convincing product commitment by all participating financial institutions. A clear case

of «Design by ConsensusPLUS».

André Bamat, CEO Swiss Interbank Clearing Ltd.

Editorial

3

DEAR READER

Compliance ClearIT, Edition 20

4

ClearIT: What is seco’s responsibilityin connection with financial sanc-tions?

Roland E. Vock: seco is responsible

for the implementation of internatio-

nally supported sanctioning mea-

sures in Switzerland. In particular,

that refers to measures the UN Secu-

rity Council orders based on Chapter

VII of the UN Charta (Maintaining or

Reestablishing World Peace or Inter-

national Security). Switzerland is

bound by international law to imple-

ment these resolutions. De facto,

Switzerland has participated in all

non-military UN sanctions since the

early 1990s. Generally speaking,

Switzerland also adheres to sanctio-

ning measures introduced by the EU.

In Switzerland, the EU embargo law

EmbG, effective as of January 1, 2003,

forms the legal basis for the imple-

mentation of the sanctioning mea-

sures. Supported by this legal frame-

work, the Federal Council implements

sanction decrees containing the spe-

cific measures in detail. Currently,

there are seven such sanctions in

force: the regulation about measures

towards persons and organizations

with connections to Osama bin-

Laden, the al-Qaïda organization or

the Taliban, as well as regulations

concerning Iraq, ex-Yugoslavia,

Liberia, Myanmar (ex Burma), Sierra

Leone and Zimbabwe.

Most of these resolutions also con-

tain financial sanctions. While re-

gimes sanctioned earlier included

comprehensive financial sanctions,

(e.g. prohibition of any fund transfers

to Iraq), measures in force nowadays

are more purposeful, they refer to a

specific, often defined circle of natu-

ral or incorporated persons. Usually,

financial sanctions contain two

FINANCIAL SANCTIONS – A CHALLENGE FOR THE PAYMENT TRAFFIC

norms to be implemented by finan-

cial intermediaries: on the one hand

the freezing of funds (e.g. blocking

accounts) belonging to or under con-

trol of the persons in question and on

the other hand, a transaction ban

affecting those same persons.

What are the specific payment trafficmonitoring requirements?

The sanction regulation issued by the

Federal Council contains only a gene-

ral prohibition to transfer or to some-

Roland E. Vock (seco): «In the end this is also about the image of the Swiss financial center.»

5

Compliance

how directly or indirectly provide to

the persons under the ban. How and

by which means the financial inter-

mediaries apply this prohibition is

not defined in detail. Thus, in this

regard, the Federal Council’s sanction

are not as far reaching as other legal

norms, such as the money laundering

laws issued by the Federal Banking

Commission (FBC). Of course proce-

dures that were developed in the

area of money laundering can be

applied in the area of financial sanc-

tions. Generally speaking, from our

point of view it is feasible for smaller

institutions to outsource the payment

traffic monitoring if they lack the

funds to make some of the conside-

rable investments in the IT area.

What must the Financial Institutionsreport to you?

Blocked funds, e.g. frozen accounts,

must be reported to seco immedia-

tely. These reports must contain the

names of the beneficiaries as well as

the amount of the blocked funds.

There is no such mandatory reporting

in the area of prohibited transac-

tions. Nonetheless, banks have re-

peatedly communicated with seco in

various cases to verify that a certain

payment doesn’t fall under the trans-

action ban. However, the primary

responsibility for this clarification lies

with the financial intermediary, along

the lines of the ‘know your customer’

principal. Of course, seco is eager to

support financial intermediaries in

their efforts to the best of our ability.

During the years of 1998/1999, Switzerland focused on the issue ofacross the board financial sanctions, organizing, among other things, twointernational conferences in Interlaken, supported by the UN SecretaryGeneral. The stated goal was the introduction of differentiating smart sanc-tions that would only affect the liable ruling elites while protecting the gene-ral population. The first time the approach developed in Interlaken wasimplemented, it was directed at the Taliban regime, later against al-Qaïda.Which role does the State Secretariat for Economic Affairs (seco) playwhen applying the sanctioning regulation in Switzerland? How is the infor-mation exchanged between the financial institutions and the federal administration?How do sanctioning regulations affect the payment traffic? How do thefinancial intermediaries implement the bans?An Interview with Roland E. Vock, Head of Division, Export Control Policyand Sanctions, State Secretariat for Economic Affairs (seco).

Compliance ClearIT, Edition 20

6

How can you verify that the banksindeed implement your requirementswith due diligence and on time?

There is no systematic monitoring on

our part. But we are continually in

touch with several financial interme-

diaries and therefore rather well

informed about efforts undertaken in

that area (e.g. development of trans-

action monitoring IT systems). This

dialogue with the financial interme-

diaries is important to us. It allows us

to present and make information

available on our web site

(www.seco.admin.ch), e.g. the lists of

sanctioned persons and institutions,

in the most user friendly way.

seco, of course, obtains information

about payments executed over bans

from various sources. These viola-

tions and infractions are prosecuted.

Serious cases may be punished with

prison sentences of up to five years

as well as fines of up to CHF 1 million.

How does Switzerland compareinternationally when it comes to theimplementation of these require-ments?

From our contacts with other nations,

especially within the context of the

UN, we have been shown that we are

indeed doing quite well. Over the

past few years, Switzerland has been

actively involved in the area of finan-

cial sanctions and contributed much

to the conceptual development of the

smart sanctions. This has been end-

orsed internationally. But our com-

mitment also means that we may not

rest on our laurels. The financial

intermediaries and we of the federal

administration are continually dea-

The Wolfsberg Group, a commission made

up of representatives from twelve leading

financial institutions worldwide, has

published Principles about Money Launde-

ring Prevention in Private Banking (2000)

and Correspondent Banking (2002) as well

as Statements to Fight Terrorism and the

Financing of Terrorism (2002). Within the

framework of their exchange of expe-

riences, the group thoroughly addressed

the challenge of the practical implemen-

tation of smart sanctions pertaining to the

realization of these topics. The results were

summarized in their statement about Moni-

toring, Screening und Searching, published

in 2003 (www.wolfsberg-principles.com/

monitoring.html). In addition to the topic of

implementing smart sanctions (screening),

it also contains policies for account and

transaction monitoring.

WOLFSBERG GROUP

It is relatively easy to implement a sanction

targeting a single country and to ensure

that no barred transactions take place: any

payment traffic with that country is shut

down. However, if the sanction is defined

more specifically (only affecting selected

parties), the effort increases exponentially.

The only possible solution is an approach

coupled with the payment system with the

ultimate goal to check incoming and out-

going payments for matches with those

sanctioned parties found on the lists

published by the public authorities. As

easy as that may sound, the challenge is

tremendous. In fact, the filter mechanisms

are installed in a system built for speed.

They intervene before what appears to be

an unlawful transaction is processed, for-

warding the transaction to manual pro-

cessing.

CHALLENGING THE FINANCIAL SERVICESPROVIDERS

ling with new challenges. In the end

this is also about the image of the

Swiss financial center.

Interview: André Gsponer,

Enterprise Services AG,

andre.gsponer@eps-ag.ch

7

Compliance

The filter is used exclusively for outgoing payments

processed by the CS in-house payment traffic

systems NZV (Neuer Zahlungsverkehr = new pay-

ment traffic) and AWZA (Automatische Weiterlei-

tung von Zahlungsaufträgen = automatic forwar-

ding of payment orders). In the NZV system, all out-

going payments with CS as the ordering bank are

screened, whereas in AWZA those payments re-

ceived by CS from a third party bank to be forwar-

ded automatically to the beneficiary with banking

relations at another third party bank are screened.

In the latter case, CS acts as a correspondent bank.

The filtering is handled by an embargo controller –

an application-independent module which is

accessed by NZV and AWZA. The address and copy

entries of the outgoing payments are verified.

Suspicious payments are labeled «pending» in the

database of the corresponding system and routed

into a wait queue – the exception queue. There,

they are inspected via a user interface by a pay-

ment traffic staff member and processed according

to the in-house regulations.

The central component of the filter is an administra-

tion tool, a PC based Windows application. Internal

files are generated from the imported sanctions

lists and filter regulations and transferred to the

host. Here, they are reconfigured and stored in a

special data area. Within the tool itself, the filter is

parameterized, including the fine tuning necessary

to keep the error rate of wrongfully stopped pay-

ments as low as possible. In addition, with the help

of this tool, new or modified sanctions lists are

being prepared in order to import them on the host

via file transfer.

The payment orders transferred to the exception are labeled for

auditing purposes and filed in the ELAR – the electronic archive.

The number of interfered payment orders, the reasons they were

stopped, and information on whether the payment was rejected,

altered or executed, and by whom they were processed can be

made available in a report.

Benjamin Hollenstein,

Legal & Compliance, Credit Suisse Financial Services,

benjamin.hollenstein@credit-suisse.com

APPLICATION OF A COMPLIANCE FILTER AT CREDIT SUISSE

Credit Suisse is using the OFAC Guard-Filter, an ACE Software Solutions product. It is respon-sible for preventing illegal and suspicious payments from being settled, based on sanctions listsdeveloped by governmental organizations (e.g. Office of Foreign Asset Control, OFAC, in theUSA and seco in Switzerland).

1. Payment Transfer for inspection to the controller2. Payment Transfer for inspection to the filter3. Reply from the filter (ok/nok + details)4. Storing possible embargo details in database5. Reply by the controller (ok/nok + embargo detail ID)6. Storing the embargo details in ELAR

Embargo-pending payments are examined and processed via theuser interface.

EBPP ClearIT, Edition 20

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The idea at the basis of EBPP is straight through

processing of invoices and their payment. The ent-

ire process from billing over receiving the invoice,

the settlement and the clearance up to the pay-

ment steps are processed electronically and ideally

fully automated. As are result, there is no paper

involved – neither for the bill nor for the payment.

With the use of EBPP the new data input into the

systems of the recipient has been eliminated. Once

the cumbersome typing or scanning of numbers is

dispensed with, many errors and mistakes common

to the current system will be eliminated, the effort

will be greatly reduced. As a result, the entire pro-

cess will be accelerated considerably.

EBPP from the creditor’s perspective

Participants of an EBPP system no longer mail out

invoices by mail, instead, the billing and payment

information is transferred electronically. The EBPP

‘holds’ the invoice data for the appropriate custo-

mer to retrieve. The payment data usually printed

on the conventional payment slip is transferred

electronically to the client’s e-banking system

where it is presented in the form of an e-bill.

Here are some of the advantages and benefits:

● E-billing provides considerable savings by

eliminating printing and paper costs, paper

processing and postage.

● The billing process is accelerated since the

client receives the invoice much sooner.

● Eliminating the manual data transfer steps by the customers,

avoiding a common source of errors.

● Invoices are no longer lost or misplaced.

EBPP from the debtor’s perspective

Those customers already participating in an EBPP system of a

financial institution offering e-banking are able to call up their

electronic invoice directly from e-banking and authorize payment.

The client is able to determine the processing date, change the

billing amount, or reject the payment altogether. Invoice status

and details can also be obtained from e-banking at any time.

Here are some of the advantages and benefits from the debtor’s

perspective:

● Option to review and pay invoices from different creditors

simultaneously.

● Simplified bill paying without manual data input.

● Invoices remain available in e-storage for a certain amount of

time even after settlement.

● The invoice cannot be lost.

● No paper filing necessary

● Electronic archiving of the invoice data using the EBPP system

available as an option.

EBPP systems in Switzerland

In Switzerland the two EBPP systems, PayNet and yellowbill, are

operating independently.

PayNet, a Telekurs Group product, has been continually involved

EBPP – ELECTRONIC PROCESSING OF BILLS

EBPP (Electronic Bill Presentment and Payment) takes payment traffic directly into the future:bills can be received and paid electronically, turning much paperwork into a thing of the past.Switzerland has two operating, independent EBPP systems, PayNet and yellowbill.

9

EBPP

in EBPP for several years and is consi-

dered a pioneer in Europe. Starting in

January 2004, the Zurich Kantonal-

bank and the Hypothekarbank Lenz-

burg were the two first Swiss banks to

offer their customers EBPP services

via PayNet. As of June 2004, UBS,

Credit Suisse, and the Canton banks

of Aargau, Berne, the two

Basels and Jura, the regional banks

along with Migrosbank and Bank

Coop have joined in and are now also

providing electronic billing using Pay-

Net. Additional information can be

found by visiting www.paynet.ch.

PostFinance has been offering its

customers a similar system for appro-

ximately eighteen months. yellowbill

– with a growth rate of up to 40% per

month – has processed approxi-

mately 40,000 transactions by the

end of March 2004. 21,000 custo-

mers are currently registered with the

PostFinance system. Hypothekarbank

Lenzburg started offering yellowbill to

its clients in November of 2004. Addi-

tional information can be found by

visiting www.postfinance.ch/yellow-

bill.

André Gsponer,

Enterprise Services AG,

andre.gsponer@eps-ag.ch

Roles in the EBPP process using the PayNet example

Biller Service Provider (BSP)The biller service provider is the gateway to the PayNet network for the creditor.

It accepts data from the creditor in various formats and forwards it to the Pay-

Net consolidator.

In addition, the BSP is able to provide additional services to the creditor, such

as the presentation of billing details for the creditor’s clients on the Web, prin-

ting services for non-electronically billable invoices, archiving, etc.

Customer Service Provider (CSP)The CSP is the service provider for the invoice recipients. The CSP accepts the

billing data from the PayNet consolidator, presents the invoice on its Web por-

tal (Web-CSP), or delivers it to the payer in the appropriate EDI format (EDI-CSP)

for automatic integration into their ERP system.

CSP can offer various options to the invoice recipient for additional services like

archiving, direct payment options, and also new marketing opportunities.

Payment Service Provider (PSP)The PSP role can only be filled by financial institutions. PayNet participants can

initiate the payment of their e-bills from accounts at these organizations

directly via the PayNet network. PayNet then forwards these payment orders to

the appropriate financial institution.

ConsolidatorThe PayNet consolidator is the core element within the EBPP network. All ser-

vice providers are connected with it. The invoices of all BSP are sorted by invo-

ice recipients and delivered to the appropriate CSP. In addition, the

consolidator keeps track of the status of all invoices and can forward payment

orders to the connected financial institutions (PSP).

This is the first in a new series of EBPP arti-

cles. ClearIT will be reporting on EBPP

systems in Switzerland and abroad, as well

as further developments and customers’

experiences in this area.

ADDITIONAL INFO

Source: PayNet

SEPA ClearIT, Edition 20

10

LIECHTENSTEIN ON ITS WAY TO THE UNIFORM EURO PAYMENT TRAFFIC ZONEDuring its parliament session on March 11, 2004, the Liechtenstein parliament has agreed tothe government’s proposal to integrate into national law the EU Regulation 2560/2001 gover-ning cross-border payments in euro. According to the fee uniformity policy embodied in theregu-lation, equal treatment of domestic and cross border payments in euro must be guaran-teed.

Liechtenstein’s principality – toget-

her with the other European Econo-

mic Area (EEA) countries Iceland and

Norway – has decided to adopt this

pricing regulation into the EEA agree-

ment. If Iceland and Norway adhere

to the legislative schedule, the agree-

ment will take effect by July 1, 2004.

In addition, a resolution of the joint

EEA Commission granted an exten-

sion until July 2005 of article 3 of the

EU Regulation for purposes of imple-

mentation.

Special relationships with Switzerland

In addition to this political process,

the practical implementation is of

importance to Liechtenstein’s banks.

For more than six months, both IBAN

account numbers and BICs are being

printed on relevant receipts and

forms. Simultaneously, the most sig-

nificant order forms have been adap-

ted. In addition to all these organi-

Andreas Zimmerli, Head of the Division Production, Verwaltungs- und Privat-Bank Aktiengesellschaft, Vaduz

In our previous ClearIT edition, we talked

in-depth about the effects of the Single

Euro Payments Area, SEPA, on the Swiss

payment traffic. Now we are focusing on the

unique situation in Liechtenstein: On the

one hand, the principality has chosen to go

the path of the EEA with Europe, on the

other, it remains closely tied to Switzerland

by means of an economical and customs

contract and through its use of the CHF as

its official currency.

Copyright «Liechtenstein Tourism»

zational measures, the implementa-

tion in reference to the payment traf-

fic fees, too, is important. Here, it is

of significance to note that the pri-

cing regulation governs payments

within the EU/EEA, and that the

Liechtenstein principality maintains

very close relations with Switzerland.

This is relevant in that from both

Liechtenstein’s and the Swiss per-

spective, payment traffic between

Liechtenstein and Switzerland is not

ADDITIONAL INFO

11

InhaltSwiss Interbank Clearing

considered cross-border, but dome-

stic. However, under the EU Regula-

tion, the domes-tic euro payment is

considered bulk payment traffic ser-

vice within the EU/EEA.

It will become apparent by July 1,

2005, whether this non-congruent

interpretation bears any applied rele-

vance. It admittedly has less bearing

on everyday business transactions

and on payment traffic fees.

The banks of Liechtenstein primarily

position themselves strategically as

premium asset/investment manage-

ment institutions rather than bulk

payment traffic processors. Accor-

dingly, the prices they charge their

customers for payment traffic servi-

ces in euro will have little or no

ART. 3, EU REGULATION2560/2001

effect. Also, solutions referring to the

compensation options for loss of pro-

fit are not a high priority for these

banks. Nonetheless, many Liechten-

stein financial institutions are in the

process of revising their pricing con-

cept in order to make it more diffe-

rentiated. In doing so, the currency is

less important than the effort re-

quired by each service rendered,

regardless in which country the payee

account is located.

Andreas Zimmerli,

Head of the Division Production,

Verwaltungs- und Privat-Bank

Aktiengesellschaft, Vaduz,

andreas.zimmerli@vpbank.com

SIC DAILY TURNOVER EQUALS OF UP TO THREE QUARTERS OF THE ENTIRE SWISS GROSS DOMESTICPRODUCT

Ever since SIC started operation in 1987, the number of transactions processed annually hasmarked a continuous, steep increase. Hence, in 2003, the number of transactions had grownthreefold from ten years prior. Compared to the first full year of operations, the growth rate is animpressive 500 percent. On peak days, SIC handles more than two million payments.

As much as CHF 300 billion in volume

is processed, which represents

approximately three quarters of the

Swiss gross domestic product. During

the last year, the system handled

approximately CHF 178 billion per

average day.

How the euro affects the Swisspayment traffic

Neither the launch of the euro as a

book currency in 1999, nor its cash

introduction produced the generally

anticipated impact on the CHF pay-

ment traffic. While the euroSIC trans-

action volume grows steadily, its two

million payments annually appear

somewhat modest in comparison

with the number of SIC transactions.

This, however, in no way diminishes

the tremendous significance of euro-

SIC for the Swiss financial center as a

platform for the domestic and cross-

border euro payment traffic. It’s note-

worthy that euroSIC ranks sixth in

size among the 16 European RTGS

euro systems.

Swiss Interbank Clearing ClearIT, Edition 20

12

Marginal effect of CLS on SIC

CLS (Continuous Linked Settlement),

started up in September 2002, is a

global payment system eliminating

the fulfillment risk in the foreign

exchange trade with its step-by-step

processing. By now, foreign exchange

transactions are processed in these

11 currencies: AUD, CAD, DKK, EUR,

GBP, JPY, NOK, SGD, SEK, CHF, and

USD. Since the liquidity demand is

based on the net system, i.e. the

debits and credits in the various cur-

rencies are balanced against each

other, only the remaining peak offset-

ting amounts (long and short posi-

tions in any given currency) are sett-

led via the corresponding national

RTGS systems. The net funding requi-

rement in CLS, the total of the peak

offsetting amounts has dropped from

18 percent at the beginning to below

three percent of the trade volume.

This results in a theoretical CHF fun-

ding demand of roughly 1.8 billion or

one percent of the SIC turnover.

Based on the low liquidity needs, an

amount volume reduction of up to

one third of the daily turnover was

predicted during the preliminary sta-

ges leading to the CLS introduction.

Although today, more than 100,000

transactions of up to 1 trillion USD

gross value are processed worldwide

in CLS – Switzerland’s share of the

total turnover in CHF amounts to 4.6

percent (up to CHF 60 billions) – the

influence on the SIC volume is margi-

nal. Apparently, USD-CHF foreign

exchange trades are still executed

outside CLS, a fact reflected by the

significantly lower amount turnovers

in SIC on American (bank) holidays.

On Presidents’ Day, February 16,

2004 «only» CHF 90 billion were pro-

cessed – half of the average daily

volume.

Convergence of the low and highvalue payment processing

SIC is capable of processing both low

and high value payments. Favored

through the payment structure, espe-

cially during the lower fee night

hours, increasingly low amount pay-

ments are processed in SIC. Today,

more than 80 percent of the transac-

tions are payments below CHF 5,000.

The share of amount volume is all of

0.3 percent, compared to 1 percent of

the payments for more than CHF 1

million each and a share of more

than 95 percent of the entire turn-

over. This trend of «one RTGS fits all»

will continue throughout the next few

years for the following reasons:

● Due to the phasing out of the cen-

tral DTA (data carrier exchange)

processing, customer payments

will increasingly be routed via SIC.

● The definition of the new LSV

(direct debit) processes provides

for the debit claims to be settled

with SIC individual payments.

● Bulk payment flows between

banks and PostFinance, currently

running outside the SIC system,

will partially be redirected for

processing at SIC.

Thanks to SIC’s simple economies of

scales, additional volumes can be

processed for marginal fees. The

resulting savings are passed on to

the participants in the form of lo-

wered prices and discounts. Last

year, in addition to transaction fee

reductions of approximately eight

percent in 2002, discounts of CHF 4.6

million were granted.

With a volume of 215 million transac-

tions forecast for this year, SIC will

continue to be one of the world’s lar-

gest RTGS.

Andreas Galle,

Swiss Interbank Clearing Ltd.,

andreas.galle@sic.ch

13

Standardization

The use of the IPI (International Pay-

ment Instruction) is marginal both in

the EU as well as in Switzerland. This,

even though the standard contains

all the information required for the

automated straight through payment

processing (STP). By the end of 2005,

the Swiss Payments Council (SPC) will

decide how the IPI should be used in

the domestic payment traffic.

Originally, the IBAN (International

Bank Account Number) was designed

in conjunction with the euro launch

in order to simplify the EU payment

traffic and making it less expensive

and more universal. After an initially

slow start, the development has

quickly gained momentum within the

EU zone. This fact was triggered by

the EU resolution on pricing; the dif-

ferent pricing for non-STP versus STP

payments exerts upward pressure on

the STP rate. The IBAN also contri-

butes considerably to a high STP rate.

As a result, certain countries – such

as Italy – have already voiced their

intention to replace the proprietary

account number formats with the

IBAN. Approximately 60% of all cross-

border payments within the EU zone

are already processed using IBAN.

The IBAN in Switzerland

With a mere 1 percent of all domestic

payments using the IBAN, it is still

barely used, whereas the increase in

the area of cross-border payments is

striking. More and more orders for

payment abroad reach the banks

including the IBAN, while still often

lacking the necessary BIC (Bank Iden-

tifier Code/SWIFT

address). At this

time, the inter-

bank Product and

Marketing Commit-

tee (PAM) is evalu-

ating a product

capable of supply-

ing the appro-

priate bank infor-

mation complete

with BIC, based on

the IBAN.

An inquiry at seve-

ral Swiss banks

has shown that approximately 8% of

all payment orders submitted cause

problems in processing due to

various errors in the account num-

bers. By replacing the proprietary

account number format with the

IBAN, these exceptions and resulting

manual processing expenses could

be lowered significantly. Thanks to

the check digit, the IBAN can already

be verified at the payment’s origina-

ting source. The SPC decided in

March 2004 to initiate a project fur-

thering and expanding the use of the

IBAN within the Swiss payment traf-

fic. The following activities are sche-

duled first:

● Planning the communication pro-

cedures and information policy

● Devising the impact on IT at the

financial institutions and software

companies

● Evaluating migration processes

(conversion into IBAN/clearing up

processes)

● Discussing pricing for non-STP

and STP payments

● Verify use of the IBAN on the

banks’ red deposit slips.

Hanspeter Kissling,

Credit Suisse,

PAM Chairman,

hanspeter.kissling@credit-suisse.com

IBAN AND IPI – QUO VADIS?The two international standards – IBAN for account numbers and IPI for payment receipts –have evolved along different paths ever since their launch by the European Committee for Banking Standards (ECBS) in 1999 and their introduction to Switzerland in the fall of 2000.

Economies of scales

One other significant redesign ele-

ment is the more efficient exploita-

tion of the existing payment traffic

processes and their supporting IT

components. The economies of sca-

les achieved lead to lower costs in

the Swiss banks’ payment traffic. For

example, consider the Swiss Inter-

bank Clearing processes: Currently,

LSV orders are credited to the appro-

priate banks and debited the coun-

terparties without notification using a

dedicated application, in a specifi-

cally developed settlement process.

The processing and communication

within the future LSV is based on the

SIC platform. The «payment» of LSV

orders is executed using the familiar

message types A10 and A15, enabling

Swiss Interbank Clearing to save con-

siderably on operations costs, which

will in turn have a direct

effect on SIC transaction

fees. By lowering the indi-

vidual transaction fee, all

LSV participants benefit.

Dave Brupbacher,

Swiss Interbank

Clearing Ltd.,

david.brupbacher@sic.ch

Products & Services ClearIT, Edition 20

14

The comprehensive order includes

organizational and software adap-

tations affecting all LSV participants

(clients, financial institutions and

Swiss Interbank Clearing). The imple-

mentation is scheduled to include a

realization and migration phase of

several years, with the project being

completed by the end of 2006, inclu-

ding decommissioning the current

systems.

Product features

The redesign of LSV leads to some

noteworthy product features. One of

them is the right of refusal that will

be standard for all future LSV orders.

Compared to today’s process without

the option of right of refusal, this is

clearly an added value from the con-

sumer’s perspective – one that will

likely convince even the most critical

customer of the new LSV.

Due to this new LSV solution, all

debit entries not resulting from right

of refusal are eliminated, thus redu-

cing number of debit entries by 95%.

This leads to substantial savings for

both consumers and financial institu-

tions.

Another of the redesigned LSV fea-

tures addresses the issue that, with

increasing frequency, debit entries

processing in euro is requested. In

future, the Swiss banks within the

Swiss financial center will be able to

process LSV orders both in Swiss

francs and euro. This feature can

attract those additional customers

who had to use alternative payment

paths thus far.

THE BEGINNING OF THE LSV (DIRECT DEBIT) REDESIGNThe Swiss Interbank Clearing Ltd. board of directors, during its latest meeting, adopted thedetail concept for the redesign of the LSV (direct debit) service and awarded Swiss InterbankClearing its development.

LSV via online banking from the creditor’s point of view

Products & Services

THE CONVERSION TO FINANCE IPNET IS RUNNING ATFULL SPEED

May 1st, 2004 marks the beginning of the end: the last phase of the conversion from the out-dated TELOSnet X.25 technology to the new Finance IPNet was initiated. Approximately 90 percent of all financial institutions had yet obtained a new infrastructure at that point.

At the same time, Swiss Interbank

Clearing started to charge a penalty

for non-cancelled SIC/euroSIC autho-

rizations on X.25 lines. So if your

financial institution has the IP infra-

structure up and running and you still

are charged additional line fees, it is

because of these X.25 lines that are

not yet cancelled. If that is the case,

we advise you to have someone from

your company get in touch with our

line order department and our key

management team – the sooner, the

better:

You can follow along with the project’s pro-

gress by visiting www.sic.ch, News,

Projects.

ADDITIONAL INFO

Leitungsbestellungen & Key-Management

for SIC/euroSIC

Jose Enrique del Castillo &

Aneta Woytkowiak, Tel +41 1 279 41 36,

Fax +41 1 279 47 41,

E-Mail sic.keyman@sic.ch

ADDITIONAL INFO

15

The following information events

have been scheduled for all parties

involved:

For banks:➜ at the Zurich Technopark,

on June 22, 2004, starting at 2 pm

– in German

➜ at the Geneva Crédit Suisse

Forum, on June 24, 2004, starting

at 2 pm – in French/ English

For developers of LSV software:➜ at the Zurich Technopark,

on June 23, 2004, starting at 2 pm

– in German

Starting on October 1, 2004, access to SIC and euroSIC can only be obtained

using a Finance IPNet connection or remoteGATE. In other words: Access to the

SIC platform via TELOSnet X.25 will be terminated on September 30, 2004.

Dave Brupbacher,

Swiss Interbank Clearing Ltd.,

david.brupbacher@sic.ch

16

PUBLISHERSwiss Interbank Clearing Ltd., Hardturmstrasse 201,

CH-8021 Zürich, Switzerland

ORDERING/FEEDBACK – ClearIT@sic.ch

EDITION – No. 20 – June 2004

Published regularly,

Circulation German (1300 copies), French (400 copies),

English (available in electronic format only on www.ClearIT.ch)

COUNCIL André Bamat, CEO, Swiss Interbank Clearing Ltd., Christian Bieri, RBA, Armin

Brun, PostFinance, Susanne Eis, SECB, Andreas Galle, Swiss Interbank Clea-

ring Ltd., André Gsponer (Leader), Enterprise Services AG, Gabriel Juri, Swiss

Interbank Clearing Ltd., Peter Kunz, Credit Suisse, Michael Montoya, UBS AG,

Ueli Strübi, BCV, Andy Sturm, SNB

EDITORIAL TEAMAndré Gsponer, Enterprise Services AG, Andreas Galle, Gabriel Juri (Leader)

and Christian Schwinghammer, Swiss Interbank Clearing Ltd.

MASTHEAD

TRANSLATIONFrench: Word + Image, English: HTS

LAYOUT – Mirjam Steiner Advertisement Agency

PRINTER – Telekurs Document Services

CONTACTSSIC Operation Center +41 1 279 4200,

euroSIC Operation Center +41 1 279 4700,

Product Management +41 1 279 4747,

SECB Operation Center +49 69 97 98 98 0,

Customer Service SECB +49 69 97 98 98 35

Additional information about the Swiss payment traffic systems can be found on theInternet at www.sic.ch.

The Annual General Assembly of the Telekurs Group took place on the May 12, in Zurich. From left to right: Rolf Finschi, CEO of Telekurs Services, André Bamat, CEO of Swiss Interbank Clearing and member of the Telekurs Group’s executive board,

Dr. Thomas Ankenbrand, Director of RBA-Zentralbank, and Mirko Thomas Oberholzer, legal service, Telekurs Group.

Photo: Fritz Hammer